A reader asks:
Do you think we will finally see house prices fall in 2026? Redfin says there are far more sellers than buyers and people with 3% mortgages can only hold on for so long. I know prices don’t drop often, but it seems like a weakening labor market, combined with skyrocketing prices, could finally make that happen. What do you say Ben?
If you had told me at the beginning of 2022 that mortgage rates would go from below 3% to 8% and remain above 6% for more than three years, I would have assumed that house prices would have fallen by now.
No.
Prices keep rising.
According to Robert Shiller’s housing factsprices rose by 6% in 2023, by 4% in 2024 and by almost 2% (so far) in 2025.
However, I think you could argue that buyers are finally fighting back a bit and saying enough is enough.
Redfin data estimates that the number of sellers greatly exceeds the number of buyers:
The Wall Street Journal says homebuilders are having trouble buying new homes, despite offering much lower mortgage rates:
America’s biggest builders are struggling to sell homes, even when they offer buyers a 4% mortgage. Their experience suggests that rate cuts alone will not be enough to boost weak sales in the broader housing market.
The number of completed but unsold new homes has reached levels last seen in the summer of 2009, data from the Federal Reserve Bank of St. Louis shows. Late last year, builders were confident sales would recover by 2025 and built tens of thousands of units to ensure enough supply for the spring buying season. But demand did not pick up and more houses remained unsold.
The number of new, unsold homes is rising rapidly:
And the homes that are selling are now seeing price reductions. NAR Data shows that nearly 60% of homes sold in 2025 experienced at least one price reduction.
Why don’t house prices fall more?
One reason is that national home prices simply don’t fall as often:
Prices have fallen only seven times on a nominal basis in the last 76 years. And those seven bad years were clustered in two different financial crises: the savings and loan crisis of the early 1990s and the Great Financial Crisis.
And while prices plummeted more than 25% during the 2008 debacle, the 1990 recession was a drop of just over 2%.
There have been eleven recessions in this 76 year period since 1950, so even if there is a recession it is very unlikely that house prices will fall.
House prices are not falling that much on a sustainable basis. If you’re hoping for a crash, you might be waiting a very long time.
However, these are national prices.
Everyone knows that housing is local. House prices are already falling in certain parts of the country.
Lance Lambert shows that there are parts of the country where average house prices are falling, in some cases significantly:
The housing markets in the south are seeing some significant house price corrections. Places like Austin (-26%), Cape Coral (-18%) and New Orleans (-14%) are experiencing double-digit declines.
It’s also true that the regions with the biggest price falls experienced the biggest price increases earlier this decade. From 2020 through the summer of 2022, home prices in both Austin and Cape Coral increased by approximately 70%. But it is good news that some of the excesses in these areas are being eliminated.
In certain places, a bit of common sense has returned to the market.
This decade has been unpredictable in many ways, so I’m not sure it even makes sense to make these kinds of predictions over a one-year period.
My base case would be that house prices are likely to stagnate so that incomes can catch up, but I wouldn’t be surprised by a small drop in prices if mortgage rates remain above 6%.
Falling mortgage rates could boost demand from buyers on the sidelines. But what if those interest rates drop because the economy slows down or enters a recession?
Even if there is some sort of correction in the short term, it’s hard to make the case for a total crash.
You still have a demographic tailwind when it comes to housing demand, with the largest age group in the US being in their prime home-buying years:
I wouldn’t be surprised if prices fell because they were rising so quickly, but I would be surprised if house prices collapsed.
I delved deeper into this question in the latest edition of Ask the Compound:
Bill Sweet joined me for our 200th episode (!) to answer questions about the beauty of Roth IRAs for early retirement, how Gen Z saves, how to manage the risks of retirement planning, and how military personnel should manage their money.
Further reading:
4 questions about the housing market
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